General Dynamics Corp Valuation – March 2017 $GD

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – March 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how General Dynamics Corp (GD) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): General Dynamics Corporation is a global aerospace and defense company. The Company offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; information technology (IT) services and C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) solutions, and shipbuilding and ship repair. It operates through four business groups: Aerospace, Combat Systems, Information Systems and Technology, and Marine Systems. Its Aerospace group offers aircraft design; cockpit and cabin systems, and product service and support. Its Combat Systems group offers combat vehicles, weapons systems and munitions. The Information Systems and Technology group provides technologies, products and services in support of various programs. The Marine Systems group is a designer and builder of nuclear-powered submarines, surface combatants and auxiliary and combat-logistics ships.

GD Chart

GD data by YCharts

To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[otw_shortcode_button href=”” size=”medium” icon_position=”left” shape=”square”]Learn More About Premium Membership[/otw_shortcode_button]


Downloadable PDF version of this valuation:

ModernGraham Valuation of GD – March 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $56,275,855,337 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.20 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 47.26% Pass
6. Moderate PEmg Ratio PEmg < 20 20.86 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.30 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.20 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.15 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $8.99
MG Growth Estimate 13.90%
MG Value $326.22
Opinion Undervalued
MG Grade C-
MG Value based on 3% Growth $130.34
MG Value based on 0% Growth $76.40
Market Implied Growth Rate 6.18%
Current Price $187.52
% of Intrinsic Value 57.48%

General Dynamics Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $4.67 in 2013 to an estimated $8.99 for 2017. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.18% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into General Dynamics Corporation revealed the company was trading above its Graham Number of $88.24. The company pays a dividend of $2.97 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 20.86, which was below the industry average of 22.93, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.78.

General Dynamics Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.78
Graham Number $88.24
PEmg 20.86
Current Ratio 1.20
PB Ratio 5.30
Current Dividend $2.97
Dividend Yield 1.58%
Number of Consecutive Years of Dividend Growth 4


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2016
Total Current Assets $15,447,000,000
Total Current Liabilities $12,846,000,000
Long-Term Debt $2,988,000,000
Total Assets $32,872,000,000
Intangible Assets $12,123,000,000
Total Liabilities $21,896,000,000
Shares Outstanding (Diluted Average) 310,387,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.60
Dec2016 $9.52
Dec2015 $9.08
Dec2014 $7.42
Dec2013 $6.67
Dec2012 -$0.94
Dec2011 $6.87
Dec2010 $6.81
Dec2009 $6.17
Dec2008 $6.17
Dec2007 $5.08
Dec2006 $4.56
Dec2005 $3.61
Dec2004 $3.05
Dec2003 $2.52
Dec2002 $2.26
Dec2001 $2.33
Dec2000 $2.24
Dec1999 $2.18
Dec1998 $1.46
Dec1997 $1.37

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.99
Dec2016 $7.91
Dec2015 $6.67
Dec2014 $5.43
Dec2013 $4.67
Dec2012 $4.11
Dec2011 $6.50
Dec2010 $6.13
Dec2009 $5.57
Dec2008 $5.01
Dec2007 $4.21
Dec2006 $3.58
Dec2005 $2.98
Dec2004 $2.60
Dec2003 $2.35
Dec2002 $2.21
Dec2001 $2.09

Recommended Reading:

Other ModernGraham posts about the company

General Dynamics Corporation Valuation – January 2016 Update $GD
5 Speculative and Overvalued Companies to Avoid – December 2014
32 Companies in the Spotlight This Week – 12/6/14
General Dynamics Corporation Annual Valuation – 2014 $GD
10 Companies in the Spotlight This Week – 11/30/2013

Other ModernGraham posts about related companies

Cubic Corporation Valuation – Initial Coverage $CUB
Northrop Grumman Corp Valuation – February 2017 $NOC
Rockwell Collins Inc Valuation – January 2017 $COL
Raytheon Company Valuation – August 2016 $RTN
Rockwell Collins Inc Valuation – August 2016 $COL
L-3 Communications Holdings Inc Valuation – July 2016 $LLL
Lockheed Martin Corporation Valuation – June 2016 $LMT
United Technologies Corporation Valuation – May 2016 $UTX
Raytheon Co Valuation – February 2016 $RTN
Rockwell Collins Inc Valuation – January 2016 Update $COL


The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.